PISCES: A new trading platform for private company shares

What is PISCES?

PISCES (Private Intermittent Securities and Capital Exchange System) is a new type of regulated trading platform for shares in companies that are not admitted to trading on a public market in the UK or overseas.

The measures are primarily targeted at creating liquidity in private company shares and providing a regulatory stepping stone for companies on the path to an IPO, but they also present some interesting opportunities for employee share schemes. The Treasury intends to lay the relevant statutory instrument before Parliament in May 2025, with rules from the FCA to follow.

How does it work?

PISCES will allow Financial Conduct Authority (FCA) approved operators to host “trading events” in private company shares. Participating companies will be required to disclose information to prospective purchasers; the scope of the disclosure requirements will be determined by the FCA. However, the disclosed information will be limited to those investors that may trade during the window, meaning that confidential information does not need to be disclosed to the public.

Access to this information will be within a ‘private perimeter’, managed by the platform operators. This is in order to balance the competing objectives of transparency and confidentiality.

Trading on PISCES will be limited to existing shares, so it cannot be used for capital raising. Neither will buybacks be permitted initially (although this is under consideration). PISCES transactions will be exempt from Stamp Duty and Stamp Duty Reserve Tax (SDRT).

Who can participate?

The following categories of investor will be permitted to trade shares on PISCES:

• institutional and professional investors
• retail investors who are self-certified sophisticated investors, sophisticated investors and high net-worth investors under the FPO
• employees of participating companies
• employees of companies in the immediate corporate group of participating companies, subject to a connection test that looks at whether their employment is connected to the participating company’s business.

Significance to employee share schemes

The introduction of PISCES is a significant development from an employee share schemes perspective, as it provides a new way for employees to obtain liquidity on shares or share options that they hold. It also creates new risks that will need to be considered when giving shares to employees.

Readily convertible assets

If shares are acquired by an employee at a time when arrangements exist for them to be traded on a PISCES platform, or in anticipation of the company being admitted to PISCES, the shares will be treated as RCAs. This means that, if an employee acquires the shares for less than market value, the employing company will be responsible for the payment of Income Tax and NICs on the difference between the amount the employee pays and the amount the shares are worth via PAYE.

Share awards to employees

Employees who acquire shares from their employer under a share scheme will be able (subject to the terms of any option agreement, shareholders agreement and the company’s articles of association) to sell them via PISCES if their company chooses to participate in the platform.

Platform operators will have the discretion to allow companies to restrict their shares to particular investor types, meaning that employees could be excluded as a category from a PISCES trading event.

Enterprise Management Incentives (EMI) and Company Share Option Plan (CSOP) option exercise

It is envisaged that PISCES trading windows could be specified events for the purpose of exercising EMI or CSOP options. However, this would have to be specifically addressed in the relevant option agreement and therefore it will only be possible in relation to newly granted options. HMRC has confirmed that existing option agreements cannot be amended to include a PISCES trading window. It is also not permissible to use a discretion clause to allow options to be exercised in this way.

Subject to the relevant language being included in the option agreement, PISCES therefore presents a potential new exit route for employees who hold EMI and/or CSOP options, which would often only be exercisable for practical reasons on a sale of a company.

The government is continuing to consider whether to allow existing EMI or CSOP option agreements to be amended without adverse tax consequences.

Valuations

While there will be no advance assurance mechanism to agree market values for PISCES transactions, HMRC state that they would consider PISCES transactions to be at arm’s length, meaning that employees can rely on the transaction price. Compliance checks may be used to review PISCES transactions where connected parties are involved.

PISCES therefore provides an additional source of valuation and benchmarking information for private companies, which could be useful in a wider context.

For employee share options, this may or may not be helpful, depending on the transaction. Where EMI options are granted over small minority shareholdings, a valuation discount of approximately 70% can often be agreed with HMRC. However, this may not be possible if comparable minority shareholdings are being traded on PISCES without this discount applying – and any transactions on PISCES would need to be disclosed to HMRC.

However, when employees sell small minority shareholdings, they may be able to do so without this minority discount applying if supported by transaction prices on PISCES. This may be helpful to employees, as it can allow them to realise more value at capital gains rates. Please see HMRC’s approach for more information.

This is an area that could develop swiftly once operators can become authorised, creating new opportunities for accessing liquidity in private companies for a range of purposes, including facilitating employee share schemes.

For further information on anything discussed in this article, please contact John Manis, or your usual Crowe contact.